Relevant and even prescient commentary on news, politics and the economy.

Baltimore School Test Scores and Baltimore School Spending

I’ve noted before I have a bit of an interest in Baltimore because my wife originates from there (despite having convinced herself that she’s from the Los Angeles area). So I noticed this story:

An alarming discovery coming out of City Schools. Project Baltimore analyzed 2017 state testing data and found one-third of High Schools in Baltimore, last year, had zero students proficient in math.

Contrast that with this:

The Baltimore City Public School System spent the fourth most per student during the 2014 fiscal year out of the 100 largest public school districts in the country, according to a new report by the U.S. Census Bureau.

The city’s school district, which is the 38th largest elementary and secondary public school district in the country, spent $15,564 per pupil during the time frame. Maryland has four of the 10 highest per pupil spending public school districts, with Howard County Schools rounding out the top five with a per pupil spending of $15,358.

Montgomery County schools was sixth with $15,181, Prince George’s County was eighth with $13,994 and Baltimore County came in 12th with $13,338.

According to the Census Bureau, this is the seventh consecutive year Maryland has had four public school districts rank in the top 10 of per pupil spending. Baltimore City was beat out by Boston public schools ($21,567), New York City ($21,154) and the Anchorage School District in Alaska ($15,596).

The country as a whole saw a 2.7 percent increase to $11,009 in per pupil spending from 2013 to 2014. This was the largest increase in per pupil spending since 2008.

Maryland came in at 11th out of the 50 states plus Washington, D.C., in average per pupil spending across the state at $14,003. New York spend the highest per pupil at $20,610 and Washington, D.C., was second at $18,485.

Utah had the lowest per pupil spending at $6,500.

Why are test results in Baltimore so bad?  It obviously isn’t for lack of spending.

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Cutting Taxes on Profits and Reality

The post below is silly. It is based on bending over backwards to take silly arguments for the GOP tax plan seriously. This older post is the one with some relevance to the real world.

The silly argument is that lower taxes on profits imply a lower cost of capital for firms. Investors will demand the same return net of taxes and so demand less from firms if the IRS takes less. The story continues that this lower cost of investing will cause firms to invest more which causes higher labor productivity and wages. This argument makes no sense for the following reasons

1) If you want to change investment, change the tax treatment of investment not something else. The gain (if any) from the GOP proposal should be entirely due to expensing investment. Reinvested profits will not be taxed. This should encourage higher investment in physical capital compared to paying dividends, buying back shares, or accumulating financial assets. I think it is good policy (and have thought so for 37 years at least). But once you have expensed investment, the tax on profits doesn’t affect the cost to the firm of investing. So long as it is constant it shouldn’t affect investment at all. Cutting the rate is a pure gift to owners.

2) Business investment doesn’t seem to be much affected by the cost of capital. This appears in aggregate data. The cost changes a lot with monetary policy as the interest rate changes. These changes have huge effects on aggregate demand, because they have huge effects on investment, in houses. The investment which depends on the interest rate is residential investment. Bigger houses don’t cause higher productivity and wages. For some mysterious reason the housing bubble’s expansion and bursting hasn’t convinced most economists to pay any attention to housing. Krugman says it’s been forgotten since the days of the dinosaurs

Back in the old days, when dinosaurs roamed the earth and students still learned Keynesian economics, we used to hear a lot about the monetary “transmission mechanism” — how the Fed actually got traction on the real economy. Both the phrase and the subject have gone out of fashion — but it’s still an important issue, and arguably now more than ever.

Now, what you learned back then was that the transmission mechanism worked largely through housing.

3) Been there done that. W Bush claimed he was going to cause high investment and wages by changing corporate taxation. In particular, the second Bush tax cut changed the taxation of dividends. Previously they had been taxed twice first as corporate income then as personal income of the shareholder. This, it was promised, would reduce the cost of capital for joint stock corporations (C corporations in IRS talk) and cause them to invest more. Importantly, it would have no effect on pass through firms whose profits are just taxed as personal income of their owners (some of these are called S corporations by the IRS). This means it was an experiment. According to W, if you look at a bunch of otherwise similar firms some of which are C corporations and some of which are S corporations, then following the tax reform investment by the C-corporations should increase compared to investment by the S-corporations.

Danny Yagan at Berkeley notes that it didn’t. Also there was not a statistically signficant difference in the growth of employee compensation.
American Economic Review 2015, 105(12): 3531–3563

I find analysis of the results of this experiment to be very convincing.

4) Capital is like clay, soft when you work it, then rigid once it is fired. In models it is easy to substitute capital for labor causing higher labor productivity. But in the real world, firms mostly invest to increase capacity. The substitution of capital for labor is slow. It has a lot to do with new establishments (new factories say) but not so much with refitting old ones. It is limited by technology. This means that investment has a lot to do with lack of spare capacity and not so much to do with the cost of capital. This story fits the aggregate data on non residential investment.

5) Just ask CEOs. Matt Yglesias reports

An awkward — but extremely telling — moment arose yesterday at a Wall Street Journal “CEO Council” event that featured the Trump administration’s top economic policy hand, Gary Cohn, as a key speaker.

John Bussey, an associate editor with the Journal, asks the CEOs in the room, “If the tax reform bill goes through, do you plan to increase investment — your companies’ investment — capital investment,” and requests a show of hands. Only a few hands go up, leaving Cohn to ask sheepishly, “Why aren’t the other hands up?”

And there is video

I got this from Natalie Andrews
I almost feel sorry for Cohn (OK I don’t but almost).

update: Matt Yglesias has another live one — a CEO saying the GOP argument is bogwash

Also Paul Krugman is still a dinosaur.

update: I forgot the BOA/Merrill Lynch Survey of CEOs

A Bank of America-Merrill Lynch survey this summer asked over 300 executives at major U.S. corporations what they would do after a “tax holiday” that would allow them to bring back money held overseas at a low tax rate. The No. 1 response? Pay down debt. The second most popular response was stock buybacks, where companies purchase some of their own shares to drive up the price. The third was mergers. Actual investments in new factories and more research were low on the list of plans for how to spend extra money.

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Cutting the tax on corporate profits would probably reduce US national income

Paul Krugman has been explaining (very slowly and clearly) that if the US attracts foreign investment by cutting taxes on profits, then it will have to pay the foreign investors. The Tax Foundation appears not to have noticed that loans are not gifts.

First he quoted Stephen Rosenthal’s observation that the direct effect of cutting taxes on corporate profits is to give roughly 700 billion over 10 years to foreigners who own shares of US corporations.

This is the ultra-static effect of the cut in which its effects on behavior aren’t considered. Krugman went on to note that if there is a huge inflow of foreign cash (as promised by supporters of the bill) then there will be a huge increase in US payments to the foreigners. He calls this Leprechaun economics, because it is a very important reason that Irish GDP is much greater than their gross national income. He wrote

GDP is actually the wrong measure. If you’re going to be pulling in foreign capital, you’re going to be paying more investment income to foreigners; so gross national income – income accruing to domestic residents – is going to go up by less. And surely that’s the measure we care about.


There are really two bottom lines here. One is that the true growth impacts of Cut Cut Cut would be even more pathetic than the numbers you’ve been hearing. The other is that if you’re going to make international capital flows central to your arguments, you really need to think about the implications for future investment income.

Krugman raises a question

In fact, when you bear in mind the reduced taxes collected on foreign investors who are already here, GNI could actually go down, not up.

It is interesting. I think that somewhere he explains that the answer depends on another debated issue — the true incidence of taxes on profits. Enthusiasts for the tax cuts assert that, in the long run, all of the benefits will go to workers. People who look at data, estimate that about one quarter of the benefits of a reduction of taxes on profits go to workers

(before going on, there are no free lunches — the benefits are at the expense of the Treasury so other taxes will have to be raised or programs will be cut.)

This matters for the discussion of Gross National Income vs GDP, because roughly 35% of shares of US firms are owned by foreigners. So if the money goes to investors, 35% goes to foreigners. This is true both of the old foreign investment in the USA and the new investment attracted by the low taxes. After the jump I will try a lot of horrible pain ascii formulas attampting to answer Krugman’s question of whether a profits tax cut causes higher or lower domestic gross national income. The key parameters are the current tax rate, the incidence on workers, and the share of capital.

Doing the algebra, I conclude that unless more than half of the incidence of profits tax falls on labor, cutting the rate of taxes on profits below 35% reduces gross national income.

“Half” is embarrassingly close to a whole number, but it is what came out of the horrible algebra. Also 35% is coincidentally the current statutory rate. I regret the fact that messy calculations gave such a suspiciously simple result. I don’t totally trust my algebra and don’t think my effort added much to Krugman’s. The point is that, for plausible parameters, cutting the tax on capital income reduces US gross national income.

thanks for comments. I didn’t explain the model well. I add a bit of explanation here. First it is assumed that tax reform doesn’t affect employment. In fact, it is standard to assume full employment in these models. This isn’t horribly silly at the moment. This means that total employment is equal to labor supply and can’t be changed by firms (who can compete with each other for the scarce workers).
However, increased capital does affect labor income by causing higher wages. The story is that it causes a higher marginal product of labor and higher labor demand for any given real wage. So there would be more demand for labor and the same supply, and so the price of labor (the real wage) would go up. This actually isn’t totally crazy. Real wages did go up in the late 90s and have otherwise stagnated since 1973.

end update:

Warning horrible horrible algebra after the jump

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Why are Republicans About to cut $25 Billion from Medicare ?

The PayGo law forbids bills which increase the national debt. Unless it is repealed or waived, the Republican tax cuts would cause automatic sequestration of, among other funds $ 25 billion from Medicare.

This is an excellent as usual Vox Explainer by Tara Golshan

It all comes down to the “pay-as-you-go,” or PAYGO, rule — a 2010 law that says all passed legislation cannot collectively increase the estimated national debt. In other words, if Republicans want to pass a tax cut, they have to pay for it with mandatory spending cuts — or, inversely, if Congress boosts funding for entitlement programs, it has to increase taxes.

If Congress violates this law, the Office of Management and Budget, which keeps the deficit scorecard, “would be required to issue a sequestration order within 15 days of the end of the session of Congress to reduce spending in fiscal year 2018 by the resultant total of $136 billion,” the CBO said in a letter to Minority Whip Rep. Steny Hoyer (D-MD).

Democrats can filibuster a bill which waives PayGo. But can they block a bill which defends Medicare ? If they do, will they be blamed for the sequestration ? Back to Golshan

“for Democrats, the pressure of impending Medicare and federal program cuts would likely be enough to get them on board — even though it is a budgetary gimmick to make up for a Republican tax bill they don’t want passed.”

I have a proposed strategy. Democrats demand that the bill waive PayGo and also restricts the budget resolution/reconciliation process with a claus saying budget resolutions and reconciliation bills may not be used to change Medicare. Basically, Republicans (especially Paul Ryan) have pretty much said they will try to reform (that is cut) Medicare and Social Security to close the huge deficits created by their tax cuts. Democrats can demand that they be given a veto on such reform (by requiring any such bills to be filibusterable). I think this is a line they can hold. It may be key to blocking the tax cut/ destroy the ACA bill.

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Matrix or 1984 ?

We have virtually reached the singularity when virtual reality supplants reality.

A photo tweeted by the Russian Ministry of Defense Tuesday as “irrefutable” proof that the United States has allied with the Islamic State in Iraq and Syria turned out to be from a video game.

Do android phones dream of electoral sheeple ?
What is reality and is there an app for that ?

Russian Ministry of Defence: “irrefutable evidence that there is no struggle against terrorism as the whole global community believes. The US are actually covering the ISIS combat units to recover their combat capabilities”
Nerd: Twitter users quickly noticed one of the images used as evidence came from another source — a YouTube video of gameplay from the mobile phone video game “AC-130 Gunship Simulator.”

Nerds Rule !

Nerd in basement to nerd’s mom: I’m not geeking out with a video game. I am researching potential Russian propaganda so I can join the glorious twitter struggle for truth justice and ethics in gamer journalism.

If this weirdness drives me nuts, will I notice the difference ?

The tweet has been sent down the memory hole. Of course the ironies are
1) Orwell imagined 1984 without computers
2) computers are not only useulf tools to monitor and control the masses but also the internet with true freedom of the press (with word-press) and revolutionary facebook groups overthrowing Mubarak and all that.
3) hard disks can be wiped but the memory hole now leads to the google cache
4) no I am not a ‘bot. I am a real live human being.

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2018 Midterm election economic forecast: a struggling expansion that may amplify a wave

2018 Midterm election economic forecast: a struggling expansion that may amplify a wave

We are now one year out from the 2018 midterm elections. Generally speaking, only the more involved voters show up for midterms, which seem to turn mainly on how much voters who “strongly” disapprove of actions in Washington outnumber those who “strongly” approve. Last week I noted that this metric correlated very well with the Virginia results, which featured elevated turnout by strongly approving GOPers, but an even bigger surge by strongly disapproving Democrats.

While the economy does not play so important a role as it does in presidential elections, certainly the economy is relevant to “strong” approval vs. disapproval.

So let’s take a look at what the economy is likely to look like one year from now when midterm voters cast their ballots.  To cut to the chase, if you are a democrat and you were counting on a recession to drive angry voters to the polls, that’s unlikely to happen. But on the other hand, the expansion is likely to be very lackluster, enough so that, if there is going to be a wave anyway, it may be amplified.

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Stranded Assets Rewind

Stranded Assets Rewind

There’s a Dangerous Bubble in the Fossil-Fuel Economy, and the Trump Administration Is Making It Worse…

“In reversing many of Obama’s keystone climate and environmental policies, Pruitt and Trump are conveniently ignoring these market signals in order to help out the fossil-fuel millionaires and billionaires who put them in office. Their actions could have disastrous consequences, not only for the climate but also for the global economy.”

Where are the economists on this? Oh, right — talking about tax cuts and Fed rate hikes. Using Economist’s View as my sample, I found no links whose title indicated it was about the stranded assets carbon bubble in the two weeks following publication of the above article by Carolyn Kormann in the New Yorker on October 19th. Zero.

I actually think that Kormann is unduly optimistic in her analysis. My suspicion is that there was already a massive carbon bubble prior to the 2016 election that was being wound down excruciatingly slowly. The election of the coal-guzzling orange groper stopped that winding-down in its tracks and ushered in a fossil-fueled feeding frenzy at The Last Chance Texaco.

And where are the economists?

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Trump’s HHS Secretary Nomination and Healthcare Economist Uwe Reinhardt

News Editor Joyce Frieden at Medpage Today offers up an excellent review of President Trump’s head of HHS selection Alex Azar. If you do not read MedPage Today, it is a good site to get information on healthcare and healthcare policy.

Orrin Hatch of Utah: “The leader of HHS will be at the tip of the spear, working to not only right the wrongs of [the Affordable Care Act] but also ensure the long-term sustainability of both Medicare and Medicaid,”

Wow, that is great. Perhaps Hatch will fix things like the skin-in-the-game co-pays and deductibles Congress put in place and reduce them to a reasonable level taking the pressure off the individuals’ market place.

“This candidate has the experience, knowledge and fortitude to take on these daunting challenges. I look forward to learning about his plan to restore our faith in our nation’s healthcare system and get it back on track doing what it does best – saving lives and improving the health and well-being of all Americans. I hope my colleagues on the Finance Committee will work with me in the advancement of a fair and transparent vetting process for this nominee.”

That will be a miracle in itself. Including the president, Republicans have not put anything up legislatively substantial to replace the ACA in Congress. Their only effort has been to repeal, return healthcare back to what it was pre-2010 and disenfranchise 22 -30 million citizens who have healthcare under the ACA. The Republicans are offering up the same old BS which has been on the plate since 2008 only this time it is being offered up by a different waiter.

Arguably this HHS Director candidate is more qualified to lead the HHS than his predecessor. However, Democrats and advocacy groups are not so pleased with Trump’s selection. Here is Public Citizen’s President Robert Weisman’s comment:

“If Alex Azar’s nomination is confirmed, then Big Pharma’s coup d’etat in the healthcare sphere will be virtually complete.”

Public Citizen’s Peter Maybarduk adds;

“As Tweeter-in-Chief, Trump tells us Azar will be a ‘star’ who will lower prescription prices. Maybe he should have asked the 6 million diabetic Americans whose insulin prices have more than tripled under Azar’s watch at Eli Lilly.”

Mr. Alex Azar does have the qualifications. Alex Azar is the former head of pharma giant Eli Lilly’s U.S. division. He was also the HHS general counsel and deputy secretary during the George W. Bush administration. He has received praise for his competence and knowledge about health policy. He is a strong critic of the Affordable Care Act and he has opposed ideas for reducing prescription drug prices such as purchasing drugs from other countries where prices are lower.

Again Peter Maybarduk;

“Eli Lilly is notorious for spiking prices of this century-old isolated hormone. During Azar’s tenure as president and vice president, Eli Lilly raised the price of Humalog by 345%, from $2,657.88 per year to $9,172.80 per year.”

This does not bode well for consumers of healthcare and pharmaceuticals. Of course then, what has been favorable for citizens when taking into consideration Republican’s attitude towards the ACA and erasing what a previous president accomplished in spite of their blockage. Others such as the Bipartisan Policy Center view Azar’s overall healthcare and pharmaceutical experience as a positive as he would bring industry perspective to the healthcare environment today as the head of the HHS. Azar’s overall objectivity remains to be seen and experienced when considering the ACA, pharmaceutical costs, handing over ACA policy to states, and changes to Medicaid and Medicare. Former head Tom Price failed as the head due to a lack of objectivity, his planned sabotage of the ACA, and in taking advantage of supposed HHS perks.

Today, effective healthcare for all advocate Uwe Reinhardt died. His research focused on hospital pricing, healthcare systems around the world, Medicare and healthcare spending. His work appeared in the New England Journal of Medicine, JAMA, Health Affairs, the British Medical Journal, the New York Times and other leading publications. Uwe;

Politically, you cannot legislate what rationally makes perfect sense.”

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Saudi Crown Prince Attempts To Destabilize Lebanon

Saudi Crown Prince Attempts To Destabilize Lebanon

Of course that is not what Muhammed bin Salman (MbS) or his mouthpieces claim, but it is pretty much what every commentator I have seen outside of Saudi Arabia thinks is the likely outcome of his most recent actions, taken on the heels of his purge/arrests of over 200 people, with apparently more possibly about to be swept up in a supposed anti-corruption drive, although as Anne Applebaum put it, “In some countries a person is charges with corruption and then arrested, while in others they are arrested and then charged with corruption, with Saudi Arabia being among these latter.”  An unfortunate aspect of the current situation is that there are many loose ends and uncertainties, with many people in Lebanon making accusations that are being denied by Saudi authorities, but with no credible denials of the charges coming from those most affected and involved.

What KSA has done is invite the premier of Lebannon, Saad al-Hariri to visit KSA and then have him announce Riyadh his resignation from that position.  While he seems to have said little of any substance in his resignation speech and has said basically nothing since then nor made any public appearances that I am aware of, Saudi authorities said that the reason for this resignation was that he was in danger of being assassinated by Hezbollah or other enemies, which had happened to his father Raif in 2005, making this suggestion/accusation have some credibility.  Raif had also been premier, a position guaranteed to a Sunni as part of the Syrian government and Hezbollah, the latter a longstanding relationship.

As it is, nobody in Lebanon has accepted al-Hariri’s resignation, including the members of his own party, the Forward Movement, although they have so far defended the Saudis against criticism of their actions.  All the major political figures have demanded that he return to Lebanon so that he can resign there if he so wishes, including both his rivals such as Aoun and Nasrallah, the Hezbollah leader, as well as the members of his party.  Those in the rival parties, although all in the coalition together, have charged the Saudis with putting al-Hariri under house  arrest and forcibly preventing him from returning to Lebanon.  What he actually can do or wants to do is unknown.

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